Corporate Governance Problem at Enron

Corporate Governance

Q: What was the Corporate Governance problem in Enron?

A: The Corporate Governance problem in Enron was across many levels. To start with, the top officials, blatantly abused their power and privileges. They were focussed on personal gains and short term monetary gains rather than the company’s welfare or the shareholders’ wellbeing.

The irony was that the External Auditors who were supposed to be the up lifters of the law were negligent and complacent to an extent that they were even suspected of being a part of the scandal. The people involved actually manipulated information in their financial statements. They always kept their self-interests above other employees and the public.

The scam was done on a very large scale involving so many people that there was no one even left to exercise any kind of oversight over the events. They managed to set the loyalties of the employees in the right direction by making optimistic announcements about the prospects of the company.

The second level management was also accountable for following the top management blindly. It was in their hands the culture of the company is left to be cultivated, and with such expectations one would require of them to be vigilant and steadfast in their morals. Instead, they were the ones who approved the dubious partnerships and ultimately abandoned the employees when their act came down.

The Board also had members who did not understand the financial statements of the company or its operations. It was a pathway to commit fraud since the people involved were not even capable of fulfilling their duties efficiently. They also encouraged the employees to work on their own terms but to bring numbers on the paper somehow.

The factors stated above, along with a strong motive to increase gains at any cost and the arrogance in culture that they can get away with anything ultimately led to the collapse of the empire of Enron.

Vasantharajan. S

Section: B

13020841115